Should you add a spendthrift trust to your estate plan?

One often-used option for estate planning is a spendthrift trust. These trusts have benefits similar to those of any other trust, but their beneficiaries never gain access to the principal. Instead, the investment of the principal and the management of the trust, including disbursements of funds, are handled solely by the trustee.

Let’s go on a deeper dive into the benefits of funding spendthrift trusts.

Who can benefit from funding these trusts?

Loving parents and grandparents can achieve peace of mind for loved ones they leave behind by utilizing spendthrift trusts. Below are a few of the advantages:

• The funders preserve the principal of the trust. This is important if you want these funds to last for the beneficiary’s lifetime.

• Trustees carry out the funder’s intentions. The one making and funding the trust sets its terms. That means the frequency of disbursements and the management of the funds is left up to the previously instructed trustee.
• Trusts skip probate. Complicated estates can take a year or more to resolve. Once the funder passes, funds are made available according to the terms of the trust.

There can be other advantages to funding spendthrift trusts. An estate planning professional can help you explore all your options.

These trusts are not just for overspenders

While a spendthrift trust can indeed help protect a loved one from succumbing to their worst instincts when they have an addiction to drugs, gambling, shopping or something similar, they are useful under other circumstances as well.

They’re often used to protect beneficiaries who are in occupations that are considered high-risk for litigation, such as those in medical professions, law or politics. They can protect the principal of the trust from being seized in court judgments or jury verdicts. They can also be used to shield a beneficiary from asset grabs in a divorce.

The takeaway? While not everyone needs a spendthrift trust, those who do use them can customize them to fit their beneficiaries’ circumstances.